Actually, 'they' did know alcohol could be used as a fuel when the automobile was invented. A lot of shine runners in the good ol' prohibition days
actually used sterilized tanks filled with the contraband to both fuel their cars and transport the illegal whiskey.
The problem comes with quantity. Yes, alcohol can be made from almost any agricultural product (plant life), but it is cheaper to produce from corn.
We also eat corn (or used to, before we started burning it in cars

). So in order to produce enough alcohol to handle our transportation needs,
we would need a LOT of agricultural waste, and a LOT of facilities to produce it from something that is inefficient at producing it.
There are a few other things to consider as well: alcohol burns slower than gasoline and hotter as well. Therefore, overuse in a standard gasoline
engine leads to a shorter engine life and a high possibility of overheating. Those shine runner cars I mentioned? they all ran exclusively on alcohol
and had the timing adjusted to allow for the slower burn. they also had high-capacity cooling systems to compensate for the extra heat produced on
combustion.
Now add in the fact that there is no such thing as 'agricultural waste'. To us it's waste, as we have no infrastructure to use it. But nature does
have such an infrastructure. Every plant (and animal, for that matter) that rots produces richer soil for the next generation of plants. That's why
the soil in the rain forests is so rich; the many many generations of plant life that have lived, died, and rotted produce a soil that could grow a
bicycle from a buried chain. Every time we use something that is destined by nature for soil fertilization, we reduce the amount of nutrients in the
future soil. A few gallons, or even a few thousand gallons wouldn't make a lot of difference in the long run, but when you start talking about
millions of gallons per day, that's a lot of leeching of nutrients out of the soil to make your car go 'zoom'.
As for alcohol burning cleaner than gasoline, I don't see how. Alcohol is actually very similar chemically to hydrocarbons, with the major difference
being an oxygen atom scattered throughout. Both, when pure, produce two ingredients from combustion in an abundance of oxygen: water (H2O) and carbon
dioxide (CO2). Pollution comes from two factors: a lack of available oxygen for the complete combustion, and impurities in the fuel. The former has
nothing to do with the fuel, but rather everything to do with combustion conditions, and while the latter may have been applicable (as alcohol is
typically purer than refined gasoline) in days gone by, present gasoline blends are pretty clean of contaminants. That's one good thing to come out
of the EPA.
So while alcohol may be a good idea for niche markets, it is simply not sufficient to power all of our transportation needs, has consequences to its
overuse (even discounting using food crops directly) and has no real benefits where pollution is concerned.
What is wrong with oil?
TheRedneck